Associates and joint ventures

Material associates and joint ventures for DSM are DSM Sinochem Pharmaceuticals (DSP), Patheon, ChemicaInvest, and POET-DSM Advanced Biofuels. DSP was formed in 2011 as a fifty-fifty joint venture between DSM and Sinochem Group. DSP is the global leader in sustainable antibiotics, next-generation statins, and anti-fungals. DSP develops, produces, and sells intermediates, active pharmaceutical ingredients, and drug products. Patheon was formed in 2014 between DSM and JLL Partners, combining the businesses of DSM Pharmaceutical Products and Patheon. Patheon is a leading, global provider of outsourced pharmaceutical development and manufacturing services, ranging from formulation development to clinical and commercial-scale manufacturing, packaging, and life cycle management. DSM sold its interest in Patheon N.V. in 2017. ChemicaInvest is a leader in the production and supply of caprolactam, acrylonitrile, and composite resins. DSM has a 35% shareholding in the company. The joint venture between POET and DSM operates a start-up commercial-scale production facility for cellulosic bio-ethanol in the US.

The interests in POET-DSM Advanced Biofuels and DSM Sinochem Pharmaceuticals are classified as joint ventures in accordance with IFRS 11 and accounted for using the equity method. DSM has had a 35% interest and significant influence in ChemicaInvest since the formation of this partnership in July 2015. DSM accounts for this interest using the equity method as well. Relations with these joint ventures and associates and their strategic importance are discussed in more detail in sections Innovation Center and Partnerships in the Report by the Managing Board.

DSM had a 49% interest and significant influence in Patheon as of the formation of this company early in 2014; this decreased to 33.5% at the end of July 2016, following a successful IPO and secondary offering. On 29 August 2017, the remaining shares in Patheon N.V. were sold to Thermo Fisher Scientific Inc.

DSM's share in its most important associates and joint ventures is disclosed below:

Company

DSM interest

2017

2016

DSM Sinochem Pharmaceuticals, Ltd. (Hong Kong, China)

joint control

50%

50%

POET-DSM Advanced Biofuels LLC (Sioux Falls, South Dakota, USA)

joint control

50%

50%

Patheon N.V. (Amsterdam, Netherlands)

-

-

33.5%

ChemicaInvest Holding B.V. (Sittard-Geleen, Netherlands)

significant influence

35%

35%

The following tables provide an overview of DSM's investments in associates and joint ventures, the bridge between 'Profit for the year' of the associates as shown in this Note, and the lines 'Share of the profit of associates and joint ventures' and 'Other results related to associates and joint ventures' in the Consolidated income statement.

Associates and joint ventures

2017

2016

Patheon N.V.

DSP

Chemica-Invest

POET-DSM

Other1

Total

Share in associates and joint ventures

Balance at 1 January

279

130

-

117

60

586

644

Changes:

- Share in results

10

9

5

(100)

(20)

(96)

(47)

- Capital payments

-

-

-

43

17

60

33

- Dividend / capital repayments

-

-

-

-

(4)

(4)

(152)

- Disposals

(249)

-

-

-

-

(249)

128

- Consolidation changes

-

-

-

-

(4)

(4)

(10)

- Impairments

-

-

-

-

(20)

(20)

-

- Transfers

-

5

-

-

6

11

(27)

- Exchange differences

(41)

(4)

2

(12)

(3)

(58)

17

- Other

1

-

-

-

-

1

-

Total changes

(279)

10

7

(69)

(28)

(359)

(58)

Balance at 31 December

-

140

7

48

32

227

586

Loans to associates and joint ventures (see note 11)

12

181

-

-

193

253

Total balance at 31 December associates and joint ventures

-

152

188

48

32

420

839

1 Among others Africa Improved Foods and Limburg Ventures are included in Other.

Profit of associates and joint ventures

2017

2016

Patheon N.V.1

DSP

Chemica- Invest

POET-DSM

Other

Total

Profit for the year (100%)

28

19

82

(199)

Non-controlling interest

-

-

(13)

-

Net profit shareholders (100%)

28

19

69

(199)

DSM's %-share in capital

-

50%

35%

50%

Share in result based upon %-share

10

9

25

(100)

(20)

(76)

(67)

Share in losses in excess of investment

-

-

(20)

-

-

(20)

20

Share in result of associates and joint ventures

10

9

5

(100)

(20)

(96)

(47)

Tax on VoFs and LLCs

-

-

-

13

-

13

9

Share in result associates and JVs

10

9

5

(87)

(20)

(83)

(38)

Book profit Patheon

1,250

-

-

-

-

1,250

232

Other

3

-

3

-

(19)

(13)

-

Other result share in associates and JVs

1,253

-

3

-

(19)

1,237

232

Total result related to associates and JVs

1,263

9

8

(87)

(39)

1,154

194

1 Period 1 November 2016 until 15 May 2017.

Loans include a €41 million shareholder loan with an annual fixed interest rate of 9.875% and €140 million bridge loans with an annually rising interest rate from 7 to 10%, both with an expected 4-year maturity, granted to ChemicaInvest; a loan of €12 million to DSP maturing in 2019; a USD 50 million loan to POET-DSM with a 5% interest rate has been fully repaid in 2017.

Patheon is included from 1 November 2015 until the end of fiscal year 2016 (31 October) for 2016 and from 1 November 2016 until 15 May 2017 (transfer to assets held for sale at that date) for 2017. On 29 August 2017, DSM sold its 33.5% interest or 48.7 million shares in Patheon N.V. to Thermo Fisher Scientific Inc. as part of a tender offer to acquire all of the issued and outstanding shares of Patheon for USD 35.00 per ordinary share in cash. As a consequence, DSM realized a cash in-flow of €1,535 million (investing activities) and a profit of €1,250 million, which is recorded as Other results related to associates and joint ventures.

Divestment of share in Patheon

Book value associate

249

Earn-out receivable

32

Total book value

281

Consideration

1,503

Earn-out receivable

32

Total consideration

1,535

Book result

1,254

Income tax

(22)

Book result after tax

1,232

Release of translation reserve and hedging reserve to Income statement

18

Total transaction result in income statement

1,250

In 2016, the equity value of ChemicaInvest was -€74 million on a 100% basis, DSM decreased its carrying amount in this associate to zero and did not recognize any further losses on its investment in the associate, as DSM has no obligation to fund beyond its net interest in ChemicaInvest. In 2017, ChemicaInvest showed a very good financial recovery, which resulted in a net profit of €82 million on a 100% basis, leading to a carrying amount of the investment for DSM of €7 million.

At year-end the total assets of POET-DSM amounted to €126 million (2016: €293 million) on a 100% basis. The POET-DSM Advanced Biofuels joint venture has a commercial-scale production facility for cellulosic bio-ethanol in Emmetsburg (Iowa, USA). It processes corn-crop residues through a bioconversion process using enzymatic hydrolysis followed by fermentation. In the third quarter of 2017, an impairment test was carried out, triggered by the delays in the start-up together with the pre-treatment re-design. The impairment test based on the adjusted cashflows of the ten-year plan where the terminal growth rate was set at 1.5% (2016: 1.5%), and the pre-tax discount rate at 11.8% (2016: 12.3%), led to an impairment for DSM of €65 million, which is included in 'Share of the profit of associates and joint ventures' and the value-in-use now equals the carrying amount. Nonetheless, POET-DSM Advanced Biofuels made progress in 2017 after a period of significant delays throughout the industry. In particular, progress was made in the development of advanced enzymes, which will now be manufactured on-site, as well as in yeast technology. The pre-treatment set-up has recently been re-designed, with the aim to improve performance.